One in 10 multifamily offices were involved in capital raising for their clients. Less than 10% of all the organizations delivered household management services, property and casualty insurance, deal facilitation, financial oversight of business interests, valuations and business consulting services.   

While many clients don’t need a comprehensive array of services at all times, and many unique capabilities are sourced for one-time use and never needed again, it’s likely that many newly formed MFOs are simply not venturing into areas that are outside their comfort zones or fee structure because they believe it could jeopardize their core sources of revenue. If these situations persist, client needs will go unmet or they will engage other professionals to acquire the appropriate solution.

It’s likely that more MFOs will begin to leverage technology and the increasing acceptance of virtual partnerships to expand the services they provide both on an ongoing and an as-needed basis.

Strategic Outsourcing
In an ideal world, the services offered by MFOs would be driven entirely by client need. It’s more likely, however, that the scope of services offered today is also influenced by each firm’s origins, core competencies and ownership structure. There are a number of factors that may force change sooner rather than later, including client demand for holistic advice, a hyper-competitive environment and the growing availability of third-party specialists. We anticipate that most MFOs will be working hard to bring a wider array of expertise to their affluent customers and will opt to do so through strategic outsourcing.

There are two principal reasons MFOs will make considerable use of external experts to supplement their offerings. The first is viability: As these boutique firms seek to deliver high-caliber, state-of-the-art solutions, it’s often unmanageable or impossible to have the full range of best-in-class professionals in-house. The second reason is cost: The very best experts typically have the highest price tags and many specialty services are only needed for certain clients and may not be required for months or years at a time. Strategic outsourcing is a cost-effective and flexible way for an MFO to expand its capabilities.

With viability and cost in mind, intelligent MFOs are assembling and orchestrating the best solutions for their wealthy clients while allowing themselves to quickly add new capabilities as different client needs or new prospects emerge. In effect, they are:

1. Identifying and concentrating on their core capabilities.

2. Strategically outsourcing non-core capabilities.

3. Maintaining diligent oversight on those providers delivering the non-core capabilities.

The following equation can be helpful in determining which services can be outsourced and which should be developed in-house.

 (Frequency + Criticality) – (Cost + Exclusivity) = Determination

• Frequency is the expected amount of usage by both clients and employees.

• Criticality is the importance of the expertise to the multifamily office, its relationships and reputation.

• Cost is the expense differential between an internal deliverable and an outsourced solution.

• Exclusivity is the degree of proprietary access required by the MFO and its clients.

Outsourcing must be done carefully and thoughtfully in order to preserve the cornerstone business and relationships while enhancing the offering in a way that appeals to existing and prospective affluent clients. In many circles, the term multifamily office is synonymous with comprehensive, holistic advice and strategic outsourcing is a method that all providers can use to find and assemble the desired combination of services and expertise.

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